The Zhitong Finance App learned that CICC released a research report stating that for the first time, Zhihu-W (02390) would “outperform the industry” rating, with a target price of HK$24. The bank believes that the company's community is developing ecologically healthily, that various business lines are progressing steadily, and that a break-even path is already in place; while costs are manageable, it has launched a collaborative self-developed “Zhihaitu AI” Chinese model to explore more functions and possibilities. The current market capitalization reference book cash and equivalents are undervalued, and business development also provides greater flexibility. At the same time, I am optimistic about Zhihu's C-side business growth potential, the certainty of break-even balance, and the potential benefits that AI will bring to the community.
The report's main points are as follows:
Commercialization is based on high-quality ecology, B-end C-end dual-wheel drive.
The bank believes that the Zhihu community is developing healthily under the “Ecological First” strategy, and MAU is expected to reach 120 million people by 2023. The company's commercial layout starts from user needs and is highly integrated with the community ecosystem to achieve mutual transformation of good content and good business, and the ecological value is gradually released.1) Marketing services:The integrated advertising and CCS business team enhances marketing capabilities. Growth is expected to return to growth in the second half of the year with the recovery of the external environment. In the medium to long term, content marketing trends will not change, and there is still great growth flexibility.2) Paid members:The membership payment rate continues to rise, revenue is growing rapidly and contributing to stable cash flow. Recently, “Yanyan Story” was launched to increase reading short stories. Member revenue is expected to grow steadily, driven by a double increase in supply and demand;3) Vocational education:The curriculum system was improved through external acquisitions, and AI technology was used to empower education efficiency. The revenue share quickly increased to 10%, and the second growth curve gradually became clear.
Cost reductions and increased efficiency are gradually being realized, and break-even in 2024 can be expected.
The bank believes that the company's break-even path will gradually become clear. On the cost side, with revenue growth, the share of fixed costs such as cloud services and bandwidth and payment costs will decline, content costs will remain stable, and gross margin is expected to rise steadily to 55% in 2024; on the cost side, sales expenses management and control results are gradually showing, and management and R&D expenses are relatively stable. Considering R&D investment related to AI technology, it is expected that the sales/management/R&D expenses ratio will fall to 35%/8%/16% in 2024, achieving break-even at the non-GAAP operating level.
AI empowers community experience optimization, and big models open up value space.
On April 13, Zhihu released the Zhihai Map AI model to develop multiple application scenarios for the Zhihu community. The bank believes that the Zhihu community has rich high-quality vertical content, and empowering users through AI is expected to enhance the user experience and release content value; at the same time, the Chinese corpus positioning is scarce in the industry, and training big language models based on application and data layer advantages is expected to achieve good results and create an industry-leading basic model.